CEO: Big Four’s influence over EU tax policy is a conflict of interest

A report by the Corporate Europe Observatory (CEO) has criticised the continued treatment of the Big Four as “neutral and legitimate partners” in EU policy-making circles.

In Accounting for Influence, the Brussels-based watchdog claimed that the accounting firms’ advice constitutes a conflict of interest due to their own involvement with tax avoidance schemes.

A study for the European Parliament estimated that corporate tax avoidance costs the EU between €50bn ($58.56) and €70bn a year. According to CEO, such large-scale tax avoidance is largely facilitated by the Big Four, who “push large scale abusive tax avoidance schemes to multinational corporations”.

The Luxembourg Leaks scandal in November and December 2014 revealed how many multinationals avoid billions in tax by channelling money through Luxembourg, aided by the Big Four. This was followed by the Panama Papers in 2016 and Paradise Papers in 2017, which exposed the widespread use of offshore tax avoidance structures, again facilitated by big accounting firms, the report said.

But, CEO pointed out, despite evidence that the Big Four play a role in facilitating, encouraging, and profiting from corporate tax avoidance strategies, the Big Four receive “tens of millions of euros” from the European Commission in the form of public procurement contracts each year.

A significant proportion of these contracts are related to tax policy. In October 2014, for example, the Directorate-General for Taxation and Customs Union (DG TAXUD) paid nearly €7m to PwC, Deloitte and EY to carry out “studies and comparative analyses in various tax and customs areas”. CEO argues that this essentially means that major tax avoidance facilitators are being paid by the EU to produce the background material used as a basis for decision-making around tax.

Another €10.5m was awarded to PwC, Deloitte, and KPMG for services to DG TAXUD in January 2018 – after the LuxLeaks, Panama Papers, and Paradise Papers scandals – for studies on “various taxation and customs issues.” CEO argues that it is “absurd that the question of possible conflict of interest does not appear to arise in such cases” and challenges the EU’s outsourcing tax expertise to tax avoidance enablers.

The report also criticises the Big Four’s involvement with lobby vehicles such as the European Business Initiative for Taxation, the European Contact Group, Accountancy Europe, and AmCham EU.

CEO said Accountancy Europe ¬– which spent €2.2m lobbying the EU in 2016 – has a board that is “full of Big Four figures”.

The organisation also expresses concern over the Big Four’s involvement with the Commission's advisory groups, citing the Joint Transfer Pricing Forum and the Platform for Tax Good Governance as particularly problematic in terms of tax avoidance.

The report is also critical of what it calls a “normalised revolving door” between Big Four employees and EU and member state officials in terms of roles. The report gives the example of the Director of Tax Policy becoming a Tax Manager at Deloitte after 30 years at DG TAXUD, and numerous officers at DG TAXUD starting their careers at Deloitte.

The report stated: “The idea that a constant swapping of personnel between private mega-firms that actively engage in selling tax avoidance structures and the institutions responsible for tackling tax avoidance might breed conflicts of interest just doesn’t seem to be recognised.”

CEO concluded: “It is time to kick the Big Four and other players in the tax avoidance industry out of EU anti-tax avoidance policy… Only then can an effective framework emerge to ensure public-interest tax policy-making is protected from vested interests.”

By Eleanor Jerome

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